Scott Moritz

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Nokia Gains Give LG Pains

Scott Moritz

As the cell phone industry's big three expands, the smaller players are starting to feel the squeeze.

Handset king Nokia (NOK Quote) is getting its game back, thanks to new phone designs and surging demand in emerging markets. No. 2 Motorola (MOT Quote) has sprung to life on the massive success of its thin metal-clad Razr phone. And Samsung, still riding its global popularity, says it is on track to repeat its strong first-quarter performance, when it shipped 25 million units.

But it seems the No. 4 player, LG, has been left out of the fun so far this quarter.

Lehman Brothers analysts in Asia say LG's cell-phone momentum is fizzling. They downgraded the big Korean consumer tech shop to neutral Thursday. The Lehman report says LG's handset shipments in the second quarter "are likely to be very weak."

Industry watchers and phone fashion critics point to LG's lack of enticing new models as the source of the sales slump.

"LG has been successful in some areas, but not very innovative with their products lately," says Gartner Group analyst Ben Wood. "As we see the competition heating up, LG has to respond."

LG's pickle is like the one Nokia found itself in at the end of 2003, say analysts. The Finnish phone giant had snoozed at the design table, forcing consumers to go elsewhere for their fancy new folding phones.

It took more than a year, but Nokia now has plans for a bunch of phones that show greater design flexibility. The new phones will slide open or unfold, sport pivoting screens and high-resolution cameras with gun barrel lenses. Nokia is expected to regain some of its lost market share this year as the new models are rolled out.

Meanwhile, Motorola has been turning skeptics into believers ever since it introduced its half-inch-thick Razr phone. The sleek metal design hit a winning note with phone buyers, helping the company increase its market share in the past two quarters.

"For Motorola, there's no question, a single product has reinvigorated the whole brand," says Wood.

But close behind Motorola is Samsung, which recently unveiled its own ultrathin flip phone aimed directly at the Razr.

The clash between the big three phone titans has made it particularly difficult for the rest of the pack.

Some players, like Panasonic, have abandoned markets including the U.S. Others, like Alcatel (ALA Quote) and Siemens (SI Quote), have abandoned the wireless phone business altogether.

"If Siemens can't make money selling 50 million units a year," says Wood, "then I think that's a sign of trouble for the others selling less."